EBRD Downgrades Forecasts for Egypt’s Growth By 1% in FY2022/23

The European Bank for Reconstruction and Development (EBRD) has downgraded its forecasts for Egypt’s output growth in 2023 to 4.3 percent, down from five percent it projected in May, before bouncing back to five percent in 2024, according to the bank’s update on the Regional Economic Prospects Report the bank issued.

The EBRD also revised Egypt’s output growth down by one percent compared to September projections, according to the report, while expected growth for 2023 to reach 4.6 percent amid reduced government spending (especially in investment) and lower domestic demand.

Highlighting Egypt’s economic scene, the report explained that the country’s economy recovered strongly from the COVID-19 pandemic in FY2021/2022.

The report cited Egypt’s real GDP growth rate that doubled to 6.6 percent in FY2021/2022, driven by the manufacturing sector, along with a rebound in the Suez Canal and tourism revenues.

However, Egypt’s growth slowed down to 4.4 percent in the first quarter of FY2022/2023, down from 9.8 percent in the corresponding period of the previous year, as a result of the Russia-Ukraine conflict, said the report.

“This slowdown resulted from the impact of the war on Ukraine on commodity prices (Egypt is a major food importer, mostly from Russia and Ukraine), coupled with lower investor sentiment, higher borrowing costs and greater pressure on external accounts,” the report explained.

It added that the Egyptian pound also depreciated by close to 50 percent against the US dollar since early March and inflation accelerated to a five-year high of 21.3 percent (Y-o-Y) in December 2022.

Touching upon Egypt’s new IMF-backed $3 billion loan deal, the report said the deal that includes the shift to a durably flexible exchange rate regime is expected to ease the pressure on the country’s external financing and accelerate reforms.

“As a result, growth is expected to improve over the medium term, as it becomes increasingly led by the private sector,” the report noted.

Output in the EBRD’s regions, which stretch across three continents, is expected to grow by 2.1 percent in 2023, down from the three percent predicted in September.

The report revised growth forecasts downwards in more than half of the 36 economies in which the EBRD operates, with very few upward revisions.

Otherwise, growth in EBRD’s regions is expected to pick up to 3.3 percent in 2024, according to the report.

Meanwhile, the report noted that output in the bank’s regions is estimated to have grown by 3.2 percent (Y-o-Y) in January-September 2022 and by around 2.4 percent for the year as a whole – slower than in 2021, as Russia’s war on Ukraine took its toll and there was a slow recovery from the pandemic.

On inflation, the report stated that the average inflation in the EBRD regions dropped to 16.5 percent in December after amounting to 17.5 percent in October, (a rate last recorded at the end of the transition recession in 1998.

The report noted that gas prices have now largely returned to the levels seen prior the war in Ukraine, fuelled by new supplies of liquefied natural gas and deliveries from Norway and Algeria that help to reduce price pressures.

“Thanks to lower consumption, driven by Europe’s mild winter and higher prices, gas in storage in Europe is above corresponding levels in 2021,” the report stated.

“The EBRD’s economies are still suffering from a mix of high gas prices and inflation, with the latter likely to take longer to fall than markets expect,” said Beata Javorcik, the EBRD’s chief economist.

She added that optimism about the rate of recovery and growth after the crises of recent years, notably the war in Ukraine, is, in EBRD’s view, misplaced.

“That is why we are calling this end-of-winter update to our forecasts ‘Not out of the woods yet,” she said.

The report also touched upon the repercussions of the earthquake on Türkiye’s real GDP growth.

“Türkiye’s GDP growth slowed significantly in 2022 and is expected to fall further, to three percent in 2023 and 2024, as growing external financing requirements and political uncertainty associated with elections create significant economic vulnerabilities.

The impact of the earthquakes on overall economic activity in 2023 is likely to be limited to one percent of GDP, with the boost from reconstruction efforts in the later months of the year likely to partly offset the damage to supply chains and infrastructure,” according to the report.

On a regional level, the report forecast output in the southern and eastern Mediterranean, where Egypt is located, to grow by four percent in 2023 and 4.2 percent in 2024.

It added that while the region’s growth decelerated significantly in 2022 because of higher inflation and tighter financing conditions, it is expected to bounce back in 2023 as agricultural output rebounds and much-needed structural reforms advance.

The report said that a more comprehensive Regional Economics Prospects report will be issued in May.